What is becoming increasingly clear is that this ANC-led government is incapable of self-correction and our last hope is business. If South Africa is ever going to get out of this deep hole, it is because business has decided that it will make the country work.
Poverty is not by accident, it is by design — lower-income, less educated, voiceless people are so much easier to control. South Africa has given up its position as the biggest economy in Africa, with a GDP of $412-billion, to Nigeria at $505-billion and Egypt in second place at $469-billion.
While South Africa’s ports and freight rail infrastructure crumble, the Maputo port and car terminal volumes grew by 30% and 35%, respectively, in just six months ended 30 June 2022.
Internally, KwaZulu-Natal is working extremely hard to ensure that it gives up its number two position (to the Western Cape’s 14%) of 16% contribution to the national GDP — what with the construction mafias, SA’s highest murder and rape rates, truck drivers’ perennial blockades of the N3 highway, the two weeks in July 2021 of a failed insurrection and rampant looting, man-assisted floods 2.0 during the Easter holidays and May 2022, and beaches with raw sewage pouring into the Indian Ocean.
What is becoming increasingly clear is that this ANC-led government is incapable of self-correction and our last hope is business. If South Africa is ever going to get out of this deep hole, it is because business has decided that it will make the country work.
Only business can substantially increase its investment in infrastructure and thereby deliver mega-projects on time, on budget and in full. But to do that, business needs a serious intervention to steer it back. Because it is incongruent to speak of a just society when business is seen to be at the apex of injustice. Business must reclaim its voice, integrity, reputation and credibility. Contrition is an ongoing process — you have to continuously ask for forgiveness and be eternally grateful for the mercy shown.
Bleak time
It is indeed a bleak time for the global economy, which is undergoing huge regime shifts, a worldwide slowdown and demonstrating the troubled neighbourhood we are in with multiple crises.
The world is moving away from financial stability, predictable financial markets, low interest rates and low inflation. Now the world is characterised by exogenous shocks, unpredictable and increased volatility precipitated by the pandemic, Russia’s unprovoked, unwarranted and unjustified invasion of Ukraine and climate change.
The proof points are global recession, supply chain constraints, labour shortages, fuel and food prices crises, double-digit inflation, increasing interest rates, low (1.1%-2.7%) GDP growth, increasing borrowing costs, a potential fifth wave of the public debt crisis, increasing global commodity prices, reduced incomes, eroding household purchasing power, a cost-of-living crisis, increased poverty levels, increasing social tensions and 123 million people in sub-Saharan Africa experiencing acute food insecurity.
There is an urgent need for fiscal coordination. The Americas and European countries are now reviewing their economic policies. The just energy transition is being seen as the best chance to return to growth in years to come.
This year has been difficult for South Africa. Global events have constrained supply chains, leading to rising input costs that have left C-suites with difficult choices to make regarding new investments, inventory holdings and revenue projections, among other issues.
However, rapid developments around the liberalisation of South Africa’s energy policy hold the potential to spur innovation and drive growth in other sectors of the economy.
Unemployment
In the social context, South Africa has the highest unemployment rate in the world — 34.9% by the standard definition and 46.3% by the extended definition, with 66.5% youth unemployment, against a global average of 6.4%.
In the Human Development Index, South Africa ranks in the second-lowest quartile. Half of the adult population lives below the poverty line and 19 million people of the 60 million population are dependent on social grants. No less than 47% of households ran out of food during Covid-19 lockdowns.
With the highest Gini coefficient globally, South Africa is the most unequal nation in the world. The richest 10% hold 71% of the wealth and the poorest 60% hold 7% of the wealth.
The Global Peace Index ranks South Africa in the lowest quartile globally with high criminality, easy access to weapons, high political instability and high degrees of violent protest. The Institute for Economics and Peace estimates the economic impact of crime (direct and indirect economic multiplier) at 12% of GDP (total: R2.2-trillion).
South Africa experienced the largest economic contraction during Covid-19 in Africa (-6.4% in 2020), following years of economic stagnation. The economic performance is set against the context of State Capture with an estimated economic cost of R1.5-trillion, as well as the deliberate destabilisation of state-owned enterprises.
The socioeconomic context is reflected in the economy. South Africa is ranked the 38th-largest economy in the world but ranks only 92nd on GDP per capita ($13,520).
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Major disruptions
Two major local events have had an impact on the post-Covid-19 economic recovery. The KZN riots in 2021 resulted in a loss of about R50-billion, estimated at 0.7% of the national GDP. The KZN floods in 2022 caused infrastructure damage of R5.6-billion, property damage of R1.9-billion and Durban lost close to 2% of its annual GDP.
Russia’s invasion of Ukraine has also had an adverse impact on South Africa — whose economy is 2.5 times bigger than Ukraine’s — with higher fuel, oil and grain prices, which is pushing up the Consumer Price Index. Higher commodity prices are driving second-order inflationary increases (including transport and agriculture), which markets are pricing in at an increase of 234 basis points over the next 12 months.
While inflation is currently high, normalisation is expected in mid-2023. Eskom has indicated that South Africa is facing a significant strain on its electricity supply. The instability in supply will further contribute to lost business revenue and increased costs, priced back to the consumer.
In sub-Saharan Africa, Covid-19 has been devastating. In 2020, the region had its first recession in 25 years and its first increase in extreme poverty in 20 years (40 million more people). Impacts were particularly felt in the informal sector as well as private-sector supply chains, commodity exports, tourism and lockdown trade.
Food security decreased and education was adversely impacted, with up to half of children (country-specific) not being able to access education remotely.
Some larger African economies are recovering from Covid-19 on the back of strong commodity prices and increased consumption, but economies remain vulnerable.
Russia’s invasion of Ukraine will amplify food and energy price inflation in Africa (a 4% regional average is estimated) and the International Monetary Fund predicts that some of the poorest and most vulnerable African countries will be the most affected globally.
Central bankers are trying to balance economic growth and inflation, but Foreign Direct Investment (FDI) in Africa remains low. Africa has 17% of the global population, and comprises 20% of the global land mass, but has only 4% of global FDI, with a 16% decline in 2020.
Contributing problems include political instability, corruption, lack of infrastructure, poor education and unpredictable policy environments, resulting in poor economic growth and inequality. Structural reforms and social buffers are needed. To protect consumers, the Central Bank of Lesotho has introduced a variety of prescribed bank transaction fee limits, including zero deposit fees at ATMs.
The global economy has shown recovery since the 2020 Covid-19 lockdowns began, but the recovery has been uneven and adversely affected by global events.
From a societal perspective, health, education, income disparity and livelihood crises are now emerging as the largest global societal risks to social stability and cohesion.
War impacts
Russia’s invasion of Ukraine has created a political divide between the West and East, with severe sanctions being imposed on Russia, and China remaining largely neutral. Ukraine, supported predominantly by Western Nato countries, has shown stronger resistance than expected, which has resulted in a much more prolonged conflict. The impacts are rippling through global markets, with supply chain disruptions, increased commodity prices and an energy crisis, as Russia and Ukraine produce 12% of the world’s oil and 17% of its natural gas.
Direct results include the Brent crude oil price increasing from $93 to $107 (15%) over the past two months, with significant volatility (the highest spike recorded was $128, a 33% increase). A sustained increase to $150 will trigger a global recession.
Global transport impacts and supply disruptions, together with food supply disruption (Ukraine and Russia account for 30% of the world’s wheat exports and 60% of the world’s sunflower oil) are now driving increasing inflation. The compound effect is a downward adjustment in global GDP growth forecasts, which started at 4.9% and are now expected to be in the range of 4.1%-4.5%. Global interest rate increases will result in increased capital outflows from emerging economies.
If I were to choose only three of the top 10 risks facing us as a people with great natural endowments, it will be the lack of a stable, reliable and predictable energy supply; youth unemployment; and the lack of implementation of structural economic reforms.
Business is committed to working with the government to drive economic growth. Business and the government have agreed on the bold and ambitious reform agenda of the ERRP and have worked together on, among others, Operation Vulindlela to effectively implement some of the reforms. Current focus is on monitoring delivery of the consolidated ERRP by social partners through Nedlac. To regain momentum, we’ve identified six areas from the current list to focus on in the immediate term. Our priority today is to agree on the process for implementation, based on learnings and the successes of Operation Vulindlela and the B4SA/government partnership. There are six immediate priorities to deliver on through public-private partnering:
Investment and growth
- We need an unconditional message that South Africa is open for investment – which requires policy certainty and interventions to improve the ease of doing business; and
- We will work jointly with the government to create sustainable, inclusive growth off the back of this investment.
Infrastructure
- Identify and put out to bid four or five critical growth-enhancing infrastructure projects which business can confidently fund – this is significant for job creation.
Network industries
- All industries that, if properly managed, aid and abet growth, and if not, inhibit growth – including all ports of entry (harbours, rail, road), spectrum, electricity and water.
Capable state
- Implementation capacity is required by the government. Business will work with relevant departments to identify skills gaps and remedies, including secondments.
The Zondo report
Business supports the findings of the report and will assist with capacity to help the government implement its findings, including secondments to the DOJ and NPA, if needed. We will set up a “Integrity Fund”, ringfenced only for prosecutions, managed by National Treasury, to enable the NPA to appoint counsel according to Section 38 of the Constitution.
Law and order, crime and security
- We need to demonstrate tangible progress on bringing those responsible for the July insurrection to book. Investors require confidence that the government has the skills and the will to prosecute and uphold law and order. Business can scale existing support to the SAPS and prosecuting agencies to assist, if required.
B4SA is a case study of an extraordinary public-private partnership to support the national vaccination roll-out. The next steps are substantive bilateral ties between the government and business to progress implementation. DM